Tuesday, July 20, 2010

The Success of Persistent Entrepreneurs

When it comes to entrepreneurship, nothing says success like a track record of previous wins.

Entrepreneurs with a history of success are much more likely to succeed in new ventures than first-timers or those who failed previously, new research from Harvard Business School demonstrates in the working paper, "Performance Persistence in Entrepreneurship" >>> [PDF]

The news that successful experience, or performance persistence, pays off may not be news at all. But HBS researchers were surprised at just how much it does help. Successful entrepreneurs in the study had a 34 percent chance of succeeding in their next venture-backed firm, compared with 23 percent for those who previously failed and 22 percent for first-timers.

"The size of the effect more than anything was surprising," note HBS professors Paul A. Gompers and Josh Lerner in an e-mail interview. "We know that there was likely to be some degree of performance persistence, but the magnitude was quite striking."

Their research, conducted with HBS professor David S. Scharfstein and former doctoral student Anna Kovner (MBA '00, PhDBE '08), raises issues that could use further study. For example, do successful serial entrepreneurs receive higher valuations and less restrictive covenants when they raise capital?